'Fast Money' Recap: Fear of Financials

The trading panel is wary of financial stocks but still finds some picks.

Author:: Mike Taylor
Publish date:: Apr 14, 2008 6:45 PM EDT

The U.S. stock market closed a bit to the downside as investors prepared for a week full of earnings reports. The Dow lost 0.2%, the S&P 500 gave up 0.3%, and the Nasdaq gave up 0.6%.

CNBC's

"Fast Money" TV show, Guy Adami noted that

Wachovia Bank

(WB) - Get Report

had cut its dividend. He said that previously, the bank had said there was no reason for it to cut its dividend, but that he has learned to be skeptical of what the CEOs of financial firms say. Despite the bad report, the stock is setting up for a trade on the long side with a tight stop.

Karen Finerman said she wouldn't go near the financials, but if she had to go one way or another, she would be long the sector.

Jeff Macke said that it might be worth it to buy

Citigroup

or the

Financial Select Sector SPDR

(XLF) - Get Report

on dips.


3 Stocks I Saw on TV
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Pete Najarian said that $24.50 is a level of support for the XLF. He said that because the fund reached that level today, he's rotating back into calls. He said there may be more room to the downside, but the $24-to-$27 range has been working in the XLF.

He said he wasn't sure about the prospects for

Bank of America

(BAC) - Get Report

Wells Fargo

(WFC) - Get Report

. On the other hand, he said

USBancorp

(USB) - Get Report

should be a good investment, even if it is a little more conservative and boring.

Adami said it's all right for investors to get long anything as long as they have a well-defined exit.

Oil continued to look strong today. Adami recommended plays on

Halliburton

(HAL) - Get Report

Schlumberger

(SLB) - Get Report

and

Baker Hughes

(BHI)

Najarian recommended

Transocean

(RIG) - Get Report

and

Diamond Offshore

(DO) - Get Report

For the Chart of the Day, the traders looked at

Encana

(ECA) - Get Report

. The natural gas company continues to work, they said.

Adami said that natural gas stocks make a 52-week high every day. He said he continues to recommend

Chesapeake Energy

(CHK) - Get Report

and

Devon

(DVN) - Get Report

. He also said

Suncor

(SU) - Get Report

has good diversity of income in oil and gas.

Jeff Macke said he continues to recommend the

U.S. Oil Fund

(USO) - Get Report

. He said the fund is at a 52-week high, and he recommends maintaining half a position because it will continue to rise.

Elsewhere in commodities, Najarian said to buy coal on pullbacks. He highlighted

Massey

(MEE)

Peabody

(BTU) - Get Report

Alpha Natural Resources

(ANR)

and

Patriot Coal

(PCX)

. Adami recommended

Arch Coal

(ACI) - Get Report

Crocs

(CROX) - Get Report

shares fell in after-hours trading after the company slashed outlook. Finerman said that she believes the shoemaker's overseas business is probably OK, but she supposed the U.S. business must be terrible.

Macke said that the outlook was horrible and that the stock is broken.

Blockbuster

(BBI) - Get Report

announced its intention to buy

Circuit City

(CC) - Get Report

. Macke said that the merger between the two companies is baffling.

Najarian said the news is a great opportunity to sell.

Najarian also predicted that the airlines are due for several mergers. He predicted that

Northwest

(NWA)

and

Delta

(DAL) - Get Report

would get a deal done Tuesday and advised viewers to watch for a merger between

UAL

(UAUA)

and

Continental

(CAL) - Get Report

Citing an upgrade cycle in the airlines, Adami recommended

Kaiser Aluminum

(KALU) - Get Report

In the service equipment sector, Adami cited a rebound in shares of

United Technologies

. He also said that numbers from

Eaton

(ETN) - Get Report

were fantastic and said the company offered great guidance. He said the news from Eaton bodes well for United Technologies and

Honeywell

(HON) - Get Report

. Finerman said she wouldn't get into the space.

Adami said that defense stock

Lockheed Martin

(LMT) - Get Report

was trading at $103 but should be at $115. The company reports earnings later in April, and he said its report is a great tell for

Raytheon

(RTN) - Get Report

Adami also said that

Johnson & Johnson

(JNJ) - Get Report

is due for a breakout. The stock should trade at the same valuation as

Procter & Gamble

(PG) - Get Report

, he said.

In fertilizer names, Najarian said that the sector is trading at a high valuation, but the price levels don't reflect forward estimates, which should bring down its price-to-earnings ratio. He said that a shortage of potash and urea means those stocks are going higher.

Adami recommended buying

Agrium

(AGU)

because the chart continues to show higher highs and higher lows.

Najarian said there's a lot of short interest in

Terra Industries

(TRA)

. He said investors should not be short these names.

The traders welcomed Jon Merriman, chief executive of Merriman Curhan Ford, to discuss the financial sector as

Merrill Lynch

(MER)

JPMorgan

(JPM) - Get Report

and Citigroup gear up to report.

Merriman said to buy banks, not brokers. He said that capital requirements for the brokers are going to increase, which is a good reason to be short. The banks, on the other hand, he said, are showing signs of bottoming.

Adami said that Wachovia is setting up for a trade with a stop at its 52-week low.

Najarian agreed that Merill Lynch and

Lehman Brothers

(LEH)

are probably good short opportunities, but argued that

Goldman Sachs

(GS) - Get Report

is too good, and he believes the broker is a buy at $165.

Merriman said that he believes the stock is overvalued.

Finerman said she'd get long the banks before she shorted the brokers. She also noted that

Capital One

(COF) - Get Report

has big consumer exposure, and she's short the name.

Najarian pointed out that USBancorp reports earnings tomorrow. He said that investors should buy the stock on any pullback.

Merriman said that

Comerica

(CMA) - Get Report

is his favorite bank to buy and recommended shorting Goldman Sachs. Adami said he would rather short Lehman Brothers than Goldman.

Intel

(INTC) - Get Report

is set to report earnings tomorrow. Macke said that margins are the most important metric for the chipmaker. Then he said revenue would be important. He said that a lowered outlook from

AMD

(AMD) - Get Report

is not good news for Intel. He said he doesn't need the earnings to be stellar but just needs to see a light at the end of the tunnel.

Najarian said he likes Intel as an investment at these levels.

David Kostin, chief investment strategist at Goldman Sachs, said in a statement today that the market is awful right now and is bearish in the short term. Finerman said she didn't know what to make of the assessment. She said she doesn't trade over a short enough term to be influenced by the statement.

Adami said to look at

CSX Corp.'s

(CSX) - Get Report

earnings tomorrow. He said that if the rail company's earnings aren't great, then viewers should wait for

Union Pacific

(UNP) - Get Report

to report.

Najarian said that he agrees with Kostin's assessment if the volatility index breaks out to the upside.

Macke said he's not trading in this environment but rather is making a list of things to buy on dips. Patient investors will be rewarded, he said.

Trader Radar

News Corp.

(NWS) - Get Report

traded on unusual volume today.

On reports that companies are inviting people to sell their jewelry to be melted and that Florida-area retailers are running low on metal detectors, the traders discussed the possibility of a gold bubble. No one on the desk owns gold, they said.

Najarian said he doesn't have any gold positions because he would rather play oil or coal.

Finerman said that there is probably a bit of a bubble in gold.

Adami said that gold is an "expensive doorstop" and pointed out that

Newmont Mining

(NEM) - Get Report

should have exploded on the rise in gold prices but is down 22% since January.

Najarian said that

Bucyrus

(BUCY)

and

Joy Global

(JOYG)

offer another way to play metal mining. They have the equipment that actually extracts metals from the ground, he said.

On returning from her trip to England, Finerman said that the English consumer is more levered than the U.S. consumer. The noted that England is very expensive, even more than the U.S. She said she believes the pound is overvalued, and that it makes sense to short the currency.

Najarian said that Europe is suffering from many of the same problems as the U.S. Macke agreed, saying that "something's gotta give," and it's likely that European currency will inflate soon.